Council Approves a Park District Plan, But Developer Calls It Unworkable

Wednesday, January 11, 2017, 1:33 am
By: 
Alice Dreger

Above: artist's rendering of what "Building A" would look like, if built.

East Lansing’s City Council last night approved the site plan for the Park District redevelopment—a major project aimed at eliminating downtown blight where Grand River Avenue meets Abbot Road, estimated to cost upwards of $140 million. But because Council also passed a tax increment financing (TIF) plan that would ultimately cost the developer millions of dollars, the developer says the project is financially unworkable.

TIF plans are typically used as financial incentives to developers. Under approved TIF plans, taxes generated by an improved property are used to reimburse developers for certain costs associated with the redevelopment. The TIF plan approved by City Council last night, however, in the amount of about $26.3 million, is designed instead to cover expenses the City has incurred and would incur to make this development happen.

In essence, the TIF plan approved would require the developer to take on the costs and the job of major public infrastructure improvements, including road and sewer work and the building of a new 425-spot parking garage. The City would pay the developer back for that work over 30 years using new taxes generated from the property. But City Council made no real provision for paying what the developer would have to pay in interest to finance this work over 30 years—a plan that could cost the developer around $10 million, the developer has said.

The vote for this TIF plan went 4-1, with Mayor Mark Meadows, Mayor Pro Tem Ruth Beier, and Councilmembers Susan Woods and Erik Altmann voting in favor. Before voting against the TIF plan, Councilmember Shanna Draheim tried unsuccessfully, twice, to add a provision to cover some of the interest costs. She told her colleagues, “The notion that we would expect developers to pay for all that [public infrastructure] and not get reimbursed for interest would be irresponsible.”

Speaking after the meeting, David Nelson, Senior Portfolio Manager at DRW Trading Group, told ELi, “The project cannot go forward under this TIF plan.” DRW is the Chicago-based company that now owns the private properties in the proposed project. The project, he said, is financially unworkable. Several representatives of the developer questioned what business person would bankroll $26 million interest-free to the City for thirty years.

The motion to have the TIF plan so heavily favor the City came from Meadows. He said he was “only willing to give a TIF in which the developer is paying us money that we pay them back for infrastructure improvements and a public parking garage.” He added, “I like the project [proposal]. But I like it at the cost I’m suggesting. This may not be satisfactory to the developer. But this is the right way to go.”

Speaking to ELi after the meeting, Draheim observed that the TIF plan as presented is “a stupid investment” from the point of view of a business person. “I wouldn’t lend the City money without interest,” she said, adding, “I could make more money elsewhere and I probably would. So I worry that nothing will happen [at the site], that we’ll be back to the drawing board.”

What will now be built at the site, Draheim observed, no one could know. “But what we do know for sure is that if they walk, we’ll be looking at least at a year or two years of trying to figure out who it will be [developing the property], and what the plans look like, and we’ll go through it all again. We have a good project on the table. It’s not perfect, but it’s good, and not just lukewarm good. It’s really good.” She expressed significant disappointment that Council had passed a TIF plan that appears to have killed the project.

Draheim’s colleagues seemed to have agreed with her belief that the site plan was a good one, as all supported it, passing it unanimously essentially without changes from how it came to Council. The site plan calls for a 12-story building at the main corner, housing a hotel and rental units, plus a new parking garage ultimately to be owned and operated by the City, and 64 owner-occupied condominium units north of Peoples Church.

Council unanimously passed various motions that changed zoning and agreed to give over the portion of Evergreen Avenue needed for the big building to extend along Grand River Avenue from Abbot Road to Peoples Church’s property —all contingent on the project happening. If the project doesn’t happen, the zoning and ownership of that portion of Evergreen Avenue reverts to what they were.

Meadows made clear that some parts of the site plan may yet be changed in the future, particularly with regards to traffic plans if the developer goes forward despite the developer’s stance that the financial plan is unworkable. A complex development agreement would also have to be worked out if the plan were to move forward.

Many citizens weighed in on the project site plan and TIF, with many raising objections to the way the process was carried out. For example, there was no clear TIF plan presented in writing in advance of the meeting that reflected what the Brownfield Redevelopment Authority (BRA) recommended last week. At last night’s meeting, it became clear Council had been presented with at least six options for the TIF, none of which were shown to the public either in advance of or during the Council’s discussion.

Reference was also made to a draft development agreement which was shown to Council but again was not made available to the public. One representative of the developer commented after the meeting that he had never seen a process like East Lansing was using, wherein so much was changed just before and during meetings without an opportunity for citizens or the development applicant to comment on major changes suddenly being considered.

The developer and the public, for example, were offered no opportunity to respond to Meadows’ proposal for the TIF, nor to respond to Draheim’s counterproposal. Meadows indicated that the chance for comment was over by the time he proposed the TIF plan that was debated and ultimately passed.

Speaking at Council earlier, when given an opportunity to do so, Chris Root called the way the TIF was being handled “unprecedented,” likening it to what she named as the rushing-through of the Cabinet confirmation process by Republican senators. (Disclosure: Root is a reporter for ELi.) She noted there had been no TIF plan clearly approved by the BRA and provided to the public—so how could Council now pass a resolution referring to a plan supposedly approved by the BRA? Her remarks were supported by a number of speakers who followed her.

In response to Root’s sharp criticism, Meadows moved to change the resolution to refer to “recommendations” rather than an “approval” by the BRA. He was unanimously supported in this by the rest of Council. After the public comment period was concluded, Meadows presented concrete items and amounts for what would be reimbursed through the proposed $26 million TIF plan: about $20.6 million for the parking structure including the cost of buying the DDA-owned Evergreen Avenue properties at the amount the DDA owes on them; about $4 million for infrastructure like road and sewer repairs; and about $1 million for administrative fees.

Former Council member Ralph Monsma spoke on behalf of himself and Ray Vlasin, who is a member of the City’s Financial Health Team. He said there were many moving parts and that inadequate information had been provided to the public as to how it was to all fit together. He strongly recommended hiring outside consultants to review the financial and legal issues, including the capacity of the developer to see the work through. Others agreed with this recommendation.

Monsma, retired banker Dave Powers, and others also questioned why, if the project was costing more than $100 million to construct, the City assessor estimated it would only be worth about $36 million when constructed. City Planning staff responded that the City assessor was using a conservative estimate in order to not overestimate how much tax might be captured in the TIF.

Referring to his years of experience in commercial litigation, Jay Brant sternly warned against entering into such significant financial and legal relationships without consulting expert lawyers and accountants. He said this was the “Kumbaya” (friendly) part of the process but that the City could well be facing litigation down the road and that it needed to be well prepared.

Several of those commenting called for “due diligence” to be conducted on the developer’s financial and legal standing, given the bad experience with the previous would-be developer of these parcels. But Council members rejected the need for this, and none made a motion to conduct this kind of investigation or to hire external consultants for the development agreement process.

Speaking earlier in the meeting, Matt Hagen of Hagen Realty, which owns the rental property just north of the planned parking garage, objected to the site plan. He noted that the area of the planned parking garage and his building fall under an historic district, and he said he was held to very strict standards when constructing his building ten years ago. He said he thought this project was going to seriously damage his property value, and he intimated he might sue.

Several representatives from local trade unions told Council they are excited about the proposal but want local union workers hired for the construction. Meadows indicated any specification about this would have to be worked out in the development agreement. The developer’s representative, David Pierson, said the developer has been talking with locally-based construction firms that use union workers.

Mike Jonna, owner of Jonna’s-to-Go (across the street from Peoples Church), came to urge Council to approve the project. He said the vacant properties are a terrible eyesore and that the area needs year-round occupancy of the sort that can help local businesses.

Citizen Jim Anderson warned that Lansing Township’s DDA has gotten into a well of debt that has been the scandalous subject of investigative reporting by the Lansing State Journal. He also questioned whether the Park District project really could get the $10 million tax credit that has been named as the reason for why the vacant properties are not yet demolished. In response to this, City Planning Director Tim Dempsey told Council that state-level staff had confirmed the current developer is still eligible for the tax credit but could jeopardize it if they demolished the buildings before the credit were secured.

Written communications to Council included statements for and against the site plan and TIF.

Beier and Altmann named as a major reason they wanted this TIF plan that it presents a way to deal with the DDA debt on the Evergreen Avenue properties. Several Councilmembers said they also wanted to use the TIF as a way to pay for infrastructure improvements that would have to happen regardless of what gets built in the area—including, for example, major sewer lines. Woods said she supported it because downtown needs the hotel and the rest of the project, including the parking garage, which she believes will generate a net income.

What happens next with these properties remains to be seen.

 

Read more:

The Blighted Corner Redevelopment: An ELi Reader Guide

Council to Consider $25M Tax Plan for Park District Development

Following Tense Council Discussion, Demolition of Blighted Buildings Delayed

Park District Plans Morph, Move Forward (more info on the site plan)